In the post-pandemic world of work, enterprises are back to relying on face-to-face interaction to conduct business. However, tools and applications that enable and secure hybrid working systems, such as those offered by Zoom, Zscaler and Splunk, will remain in demand.
- Fewer remote job roles are being advertised compared to pandemic highs, but hybrid working is here to stay
- Enterprises may reduce spending on WFH tools and applications
- The ALPS Disruptive Technologies ETF offers exposure to Zoom, Zscaler and Splunk
Work-from-home (WFH) trends may have peaked, but Splunk [SPLK], Zoom [ZM] and Zscaler [ZS] are continuing to see robust demand in the post-pandemic world.
Research by Linkedin shows that 12% of jobs in the UK advertised on the site in September were remote, down from 16% in January. The power is “shifting back to employers as hiring slows down”, with businesses becoming more “paranoid” about workforce productivity and not having full oversight of what employees are up to, Josh Graff, managing director of Linkedin for EMEA and Latin America, told Bloomberg Radio on 1 November.
Still, according to a Financial Times analysis of phone-tracking movements from mid-October published by Google, the majority of businesses are requesting that employees come into the office only some of the time. If we presume that hybrid working is here to stay, WFH applications and tools will still be required, as will the need to keep these hybrid systems secure.
As a result, the long-term outlook is strong for WFH stocks, despite short-term volatility. The Zoom share price is up a marginal 0.9% in the past month and the Splunk share price is down 2.5%. The Zscaler share price is down 9.7% in the same period.
Enterprise customers on the rise
Despite a post-lockdown slowdown, enterprise spending with Zoom has been gathering strength. Enterprise customers that brought in at least $100,000 in trailing 12-month revenue stood at 3,286 at the end of October, up 31% from the year-ago quarter.
Securing a hybrid workforce can be a huge task, but Zscaler offers solutions to achieve this at scale. The company’s results for its first quarter of 2023 will be released on 1 December, but it ended fiscal 2022 with 320 enterprise customers each contributing at least $1m in annual recurring revenue (ARR), a growth rate of 62% compared with fiscal 2021. Of these customers, 20 of them delivered at least $5m in ARR.
Splunk, whose Remote Work Insights platform helps companies manage hybrid workforces, ended its second quarter of 2023 with 723 customers providing ARR greater than $1m, up 24% from Q2 2022. It ended the quarter with $3.33bn ARR in total, a 27% year-over-year increase.
Companies may cut back near-term spend
Enterprises are likely to be trimming their budgets in the coming months and it’s for this reason that Splunk has lowered its full-year ARR guidance from $3.9bn to $3.65bn.
This revision is due to “a slower pace of existing customer migrations and expansions of their cloud deployments given the uncertain economic environment,” said Splunk CFO, Jason Child, on the Q2 2022 earnings call.
Zoom expects its enterprise customer base to continue growing. CEO and founder Eric Yuan said in prepared remarks released with the Q3 2023 earnings that this “is a testament to how the value-proposition of our platform resonates with customers even in tougher economic environments”.
Even if there is reduced spending in the near-term, demand for WFH tools and applications isn’t going to drop off, especially the need for software that helps enterprises to secure their hybrid systems.
“Working from home will ultimately stick,” Cevat Giray Aksoy, an economist at the European Bank for Reconstruction and Development who has researched the trend, told the Financial Times. “Workplace-related mobility levels will remain lower than the pre-pandemic levels.”
Funds in focus: Direxion Work From Home ETF
Zoom and Zscaler are both held by the Direxion Work From Home ETF [WFH], with weightings of 2.87% and 2.67% respectively as of 22 November. The fund is down 43.8% year-to-date, but down just 2.1% in the past month.
Splunk and Zscaler are held by the Pacer Data and Digital Revolution ETF [TRFK], with weightings of 0.94% and 1.47% respectively as of 21 November. The fund is down 6.8% since it launched in mid-June, but has gained 8% in the past month.
All three companies are held by the ALPS Disruptive Technologies ETF [DTEC]. As of 21 November, Zoom has a weighting of 1.04%, while Zscaler and Splunk have been allocated 0.92% and 0.90% of the portfolio respectively. The fund is down 29.6% year-to-date, but is up 5.9% in the past month.